Chaneys Fatburner Gyms, Inc. operates a chain of exercise facilities throughout

Question

Chaneys Fatburner Gyms, Inc. operates a chain of exercise facilities throughout the Midwest. The firm appeals to middle-aged men who suffer from obesity problems and want to improve their health by entering an exercise program. The firm currently has 8,000,000 shares of stock outstanding that have a current market price of $12. If all else remains constant, what will be the price of Chaneys shares after each of the following:

a. A 20% stock dividend.

b. A four-for-one stock split.

c. A 32.5% stock dividend.

d. What would be the total number of shares outstanding after a. through c.?

Explanation / Answer

Note: The answer for part (d) will be included within the part a, b and c itself.

a. Shares alloted as stock dividend = 8,000,000 x 20% = 1,600,000 shares
Total number of shares outstanding = 8,000,000 + 1,600,000 = 9,600,000 shares
Price after Issue = (8,000,000 x 12)/9,600,000 = $10

b. Shares outstanding after stock split = 8,000,000 x 4/1 = 32,000,000 shares
Price after Issue = (8,000,000 x 12)/32,000,000 = $3

c. Shares alloted as stock dividend = 8,000,000 x 32.5% = 2,600,000 shares
Total number of shares outstanding = 8,000,000 + 2,600,000 = 10,600,000 shares
Price after Issue = (8,000,000 x 12)/10,600,000 = $9.06

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